Strong S$ used to tame inflation: Hng Kiang

Over the longer term, he added, competitiveness could only be achieved through higher productivity and innovation such as creating new products that the market demands.

Mr Lim made these points in parliament yesterday in response to two questions posed by nominated Member of Parliament Tan Su Shan, who is also managing director and group head of wealth management at DBS Bank. She wanted to know, among other things, if the Monetary Authority of Singapore (MAS) would consider recalibrating its strong Singapore dollar policy and allow the Singapore dollar nominal effective exchange rate to appreciate at a slower pace.

"The strengthening of the Singapore dollar is a key macro-economic policy tool to keep inflation in check over the medium term," said Mr Lim.

"The MAS recognises the need to strike the right balance between ensuring exporters are not unduly hurt by a stronger currency in the short term, and capping underlying price and cost pressures in the economy."

Mr Lim added that the trend appreciation of the exchange rate was in line with the country's strong economic fundamentals. This, he explained, helped keep inflation low and stable, which in turn helped preserve the purchasing power of Singaporeans' income and savings.

"It also provides a stable and conducive environment for businesses to undertake long-term investments, thus enhancing competitiveness and providing the basis for sustained quality economic growth for Singapore," said Mr Lim.

As far as inflation was concerned, the Consumer Price Index was expected to come in just above 4.5 per cent this year, and between 3.5 per cent and 4.5 per cent in 2013.

Mr Lim said that the MAS had decided to maintain its gradual and modest appreciation of the Singapore dollar "in order to keep this inflation risk at bay".

Overall, he said that while Singapore's growth in 2013 would be "below our potential", the country would still continue to enjoy modest growth.

"We can achieve between 1.5 per cent to 2.5 per cent this year, and similar rates next year," he said.

Earlier, Ms Tan had also asked if the uncertain global economy and Singapore's productivity decline had contributed to the country's account surplus decline.

While Mr Lim noted that Singapore did not enter a technical recession in the third quarter of this year, he described economic growth for the first nine months of the year as "lacklustre", at 1.7 per cent on a year-on-year basis.

"The muted economic growth was largely due to the challenging global economic conditions, which slowed our exports growth and caused our current account surplus to decline (from $35 billion in the first half of 2011 to $27 billion in the first half of 2012)," said Mr Lim.

But despite the "sluggish" numbers, Singapore had still managed to retain its competitiveness globally, said Mr Lim.

The minister also said that as Singapore's labour market continued to remain healthy, with strong employment creation and a low unemployment rate, there was "no immediate need" for the government to step in with measures to cushion the economy from the slowdown in external demand.

The government, however, will continue to keep a close watch on developments in the global economy and stands ready to respond when appropriate, said Mr Lim.